I work for a small 6 person IT/WebDev company with 2 owners (with a 30/70 split). The company started about 10 years ago with just one member. The WebDev side has dwindled down to just me as of 6 months ago, at which point I was offered to be the "head" of the department, such as at was. My department at the moment isn't profitable, but has been in the past. The company as a whole isn't profitable at the moment, but that is due entirely to long-term debt obligations that are winding down; the day-to-day numbers look pretty solid.

As they are worried about losing what remains of their coders (and value my management viewpoint), the owners have offered an ownership stake in the firm to me. They have not settled on a number (and, indeed, admit to disagreeing quite a bit in the ideal number!), and have asked what number I need to see to consider it a good offer.

I've given it a lot of thought, but it feels almost like picking a number at random. What should my thought process be, knowing that the two owners already disagree?

Edit: I realize this is very fact-specific, but I'll try to add what I can. In the short term, this equity will result in no change to income; profits are spent on debt instead of payouts. At some point, that will change, as both owners would obviously like to get paid.

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    I suspect, unfortunately, that this will mostly come down to the specifics of the company and what you and everyone else have, are and will be contributing - I'm thus not sure we can be of much help. – Bernhard Barker Dec 23 '17 at 20:37
  • I'm sure we can't offer sound investment advice here. The way I would figure it out is: The company needs to earn enough to pay everyone well and the owners twice that (for example), an additional 1x that for expenses (including repaying debt). So (6 * 100K + (2 * 200K)) * 2) = $2M/yr. as example numbers. If each owner gives you a 5% share then they have 25/65 and you 10%. So that's 100K of the money (not being used for wages). If you reduce your wages from 100K to 50K and get the additional 50K from what is earned each year beyond 1M then if they earn 2M you break even + ownership value. – Rob Dec 23 '17 at 21:11
  • Hm, I was afraid of all that. Ownership won't affect my income in the short term, so I suppose part of it is a matter of what is too much or too little to ask for when it is all power, no profit (for now). – Michael W. Dec 23 '17 at 21:20
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    I would want to see the books and take it to my own accountant before I even suggested a number. All the books, like the last 5 years. If this could not be supplied I would run for the hills – Donald Dec 23 '17 at 22:00
  • Michael if there's no profit and you don't have 1/3rd ownership, along with each of them, then you don't have power, they outvote you. If they can vote to buy the company back from you for what it's worth (zero) then what do you have? -- Don't give up anything for something of dubious value, they're not going to give you part ownership for nothing other than to prevent you from leaving. If you worked elsewhere how much more could you earn, if it's over 20% for no more work you might as well take that over a gamble. – Rob Dec 26 '17 at 3:14

You need to talk to a lawyer.

If you are not a full partner an equity position can be dangerous. You would also have that X of the debt but not in a position to make company decisions. The founders could pay themselves a very high salary and have the company make little or nothing.

It would be better to structure a bonus or stock options.

  • a partnership and a joint stock company are different but the op does need to talk to a lawyer – Neuromancer Dec 24 '17 at 19:55
  • Sounds like a pretty good idea. They vote "by consensus," so I'm not concerned about being frozen out, even if I think "by consensus" might not make the most sense. – Michael W. Dec 24 '17 at 20:09

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